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Global Compliance and Reporting – Corporate Tax
Nsanyiwa Donald
Beatrice Melkiory
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Mobile: +255 655-281-326
Email: nsanyiwa.donald@tz.ey.com
+255 (22) 292-4040/41/42
Mobile: +255 787-606-077
Email: beatrice.melkiory@tz.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory
Nsanyiwa Donald
Fredy Rugangila
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Mobile: +255 655-281-326
Email: nsanyiwa.donald@tz.ey.com
+255 (22) 292-4040/41/42
Mobile: +255 686-477-188
Email: fredy.rugangila@tz.ey.com
International Tax and Transaction Services – Transfer Pricing
Nsanyiwa Donald
Chiaru Masonobo
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Email: nsanyiwa.donald@tz.ey.com
+255 (22) 292-4040/41/42
Mobile: +255 654-681-155
Email: chiaru.masonobo@tz.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Nsanyiwa Donald
Chiaru Masonobo
Happiness E. Gherabaster
Indirect Tax
Nsanyiwa Donald
Beatrice Melkiory
+255 (22) 292-4040/41/42
Mobile: +255 655-281-326
Email: nsanyiwa.donald@tz.ey.com
+255 (22) 292-4040/41/42
Mobile: +255 654-681-155
Email: chiaru.masonobo@tz.ey.com
+255 (22) 292-4040/41/42
Mobile: +255 758-416-992
Email: happiness.emmanuel@tz.ey.com
+255 (22) 292-4040/41/42
Mobile: +255 655-281-326
Email: nsanyiwa.donald@tz.ey.com
+255 (22) 292-4040/41/42
Mobile: +255 787-606-077
Email: beatrice.melkiory@tz.ey.com
The corporate income tax rate is reduced from 30% to 25% for the first three years from the date of listing for companies that are newly listed on the Dar es Salaam Stock Exchange and that issue at least 30% of their share capital to the public.
Companies operating in the Export Processing Zone (EPZ) and Special Economic Zone (SEZ) are exempt from corporate income tax for the first 10 years. The exemption does not apply to Category “B” investors whose primary markets are within the area outside the SEZ or who produce for 100% local supply. They are also exempt from withholding tax on dividends, interest and rental payments.
The corporate income tax rate is reduced from 30% to 10% for five consecutive years from the year of commencement of production for companies that have a newly established plant for assembling motor vehicles, tractors, fishing boats or outboard motors for boats and that have a performance agreement with the government of Tanzania.
The corporate income tax rate is reduced from 30% to 20% for five consecutive years from the year of commencement of production for newly established entities that are engaged in the manufacturing of pharmaceuticals or leather products and that have a performance agreement with the government of Tanzania.
The corporate income tax rate is reduced from 30% to 25% for companies that are engaged in the manufacturing of sanitary pads and that have a performance agreement with the government for two consecutive years from 1 July 2019 to 30 June 2021.
Digital service tax. A 2% income tax rate applies to gross payments received by nonresident persons from individuals not conducting a business with respect to electronic services. An electronic service is defined as any service provided or delivered through a telecommunications network. This includes websites; web hosting; remote maintenance of programs and equipment, software and updates, images, text and information, access to databases, self-education packages, music, films and games, including gaming activities, as well as broadcasts of political, cultural, artistic, sporting, scientific and other events, including broadcast television.
Alternative minimum tax. Companies reporting tax losses or utilizing loss carryforwards for three consecutive years must pay an alternative minimum tax at a rate of 0.5% on the annual turnover in the third loss year.
Capital gains. Capital gains are treated as business income for companies and are taxed at the corporate income tax rate. Direct and indirect share transfers are subject to capital gains tax. Disposals of mineral and petroleum rights are also subject to capital gains tax.
Administration. A company’s year of income is the calendar year. Companies may apply to the Commissioner General for the Tanzania Revenue Authority for approval of a different year of income.
Companies must file installment tax returns by the end of the third month of their year of income and file their final tax returns
within six months after the end of the year of income. The estimated tax must be paid in four equal installments, as set forth in the installment return. The remaining balance of tax due (the difference between the actual tax and tax paid in installments) must be paid by the due date of filing the final return. The taxpayer’s estimate of taxable income may not be less than 80% of the company’s taxable income as finally determined for the year of income. The Commissioner of Income Tax may allow a lower estimate if justified by the facts and circumstances of the case. Companies that are registered and issued a taxpayer identification number for the first time may elect to apply for deferment of the requirement to pay installment taxes for six months, with the deferred amount payable in three equal installments for the remaining period in the year of income.
Companies may revise their installment return and file a revised return in the 6th, 9th or 12th month of the year of income if new developments suggest an increase or decrease in income.
Tax returns are filed online through the e-filing portal of the Tanzania Revenue Authority. Companies are required to appoint a declarant (for example, a director or manager) who will be responsible for filing the company’s tax returns. The declarant is also required to have an account in the e-filing portal so that he or she can manage the company’s account.
A penalty is imposed for a failure to file a return. The penalty equals the greater of the following:
• 2.5% of the amount of tax assessable less tax paid by the start of the period in which the return is due
• 15 currency points (1 currency point = TZS15,000)
Fraud related to a return is subject to a penalty of 50% of the tax shortfall if the statement or omission is made without reasonable excuse. The penalty is increased to 75% of the tax shortfall if the statement or omission is made knowingly or recklessly.
Dividends. A final withholding tax is imposed on dividends. A 10% withholding rate applies to dividends paid to residents and nonresidents. A 5% withholding tax rate applies to dividends paid by companies listed on the Dar es Salaam Stock Exchange and to dividends paid to resident companies that hold 25% or more of the shares in the payer of the dividends.
Extractive industry. Technical services provided by resident companies or branches to the extractive industry in mining or oil and gas are subject to a final withholding tax of 5%. For nonresident service providers, the withholding tax rate is 15%.
A special tax regime was introduced for the extractive industry, effective from 1 July 2016. Significant aspects of the regime are discussed below.
Under the regime, each separate mining operation and each separate petroleum right is treated as an independent business for corporate income tax purposes. Accounts should be prepared for each separate mining operation or each separate petroleum right.
Taxable income should be determined, and income tax should be paid for each separate mining operation and each separate petroleum right for each year of income.
Depreciable assets included in Class 4 were deleted, effective from 1 July 2016. However, the classes of depreciable assets were not renumbered when the above changes were introduced. To date, the law still provides for eight classes, despite the removal of depreciable assets that were under Class 4, and no amendment has been made with respect to the reference to Class 4 that is found under Class 7.
Plant and machinery in Categories 2 and 3 qualify for an initial capital expenditure allowance of 50% for the first year if they satisfy any of the following conditions:
• They are fixed in a hotel used for tourism services.
• They are fixed in a factory used for manufacturing.
• They are used in fish farming.
The maximum depreciable amount for a non-commercial automobile is TZS30 million.
Relief for tax losses. Companies may carry forward tax losses indefinitely. The deductibility of tax losses brought forward is restricted after a period of four years of continuous losses such that only 70% of the taxable profits in the fifth year can be sheltered by tax losses brought forward (with any excess losses carried forward to future years). Mineral and petroleum operations loss carryforwards may only offset 70% of the profits in a tax year. No carryback is allowed. Special rules for long-term contracts may apply.
D. Other significant taxes
The following table summarizes other significant taxes.
Workers’ Compensation Fund; imposed on employers’ annual wage bill; employers must make monthly payments through deposits in the fund’s bank account; payments must be made on the last working day of the month after the month to which the payment relates
E. Miscellaneous matters
Foreign-exchange controls. Tanzania does not impose foreignexchange controls on current-account transactions, but the Bank of Tanzania must be notified of foreign capital-account transactions.
Transfer pricing. A company with controlled transactions of TZS10 billion (approximately USD4,300,000) or more in a tax year is required to file contemporaneous transfer-pricing documentation together with the final tax return. Taxpayers whose controlled transactions in a tax year do not reach the TZS10 billion threshold do not have to submit the contemporaneous transfer-pricing documentation with the final income tax return but must have it in place by the due date for filing the final income tax return and should submit it to the Tanzania Revenue Authority within 30 days on request.
A penalty is imposed for failure to prepare contemporaneous transfer-pricing documentation. The penalty is a minimum of 3,500 currency points, as prescribed from time to time by the Commissioner General for the Tanzania Revenue Authority. One currency point equals TZS15,000, which results in a penalty of TZS52,500,000 (approximately USD23,000).
F. Treaty withholding tax rates
The East African countries, which are Burundi, Kenya, Rwanda, Tanzania and Uganda, have signed a tax treaty, which has not yet been ratified. Tanzania has also signed a tax treaty with the United Arab Emirates. The treaty is yet to be made publicly available and ratified.